US housing starts declined for the third month in a row in May with another downward surprise as regard to consensus expectations, but this trend is quite at odds with fundamentals: the supply of existing homes for sale is dwindling, NAHB confidence remains elevated, mortgage applications for purchases are rising despite slightly higher rates while the unemployment rate is at a cyclical low, according to Thomas Julien, Research Analyst at Natixis.
Key Quotes
“It appears that the main reason for this setback is the multifamily segment with starts being down for their 5th month in a row. Meanwhile, the trend in single family starts remains upward.”
“In short, recent numbers may be more indicative of a slowdown in investment in the multifamily segment rather than suggesting a broad-based deterioration of the housing market.
- Housing starts once again surprised on the downside in May with a 5.5% decline MoM, to reach 1092K units annualized, much lower than expectations (consensus: 1220K / Natixis: 1200K). Starts were revised slightly downward in April. The decrease was this time driven by both multifamily family units (-9.7%) and single family units (-3.9%). Permits, a leading indicator, also declined against expectations.”
“Why are starts declining?
The recent trend in starts is quite at odds with fundamentals with the usual drivers of the market improving: (i) the impact of rising rates has been limited so far on demand for credit, (ii) the financial conditions of households is improving with more individual employed and rising wages and last but not least (iii) the inventory of existing homes is shrinking. All these factors indicate that the activity in the construction sector should be improving, not deteriorating.”
“Looking at what is driving the recent decline, we see that it is mostly attributable to the multifamily segment: starts have been declining for their 5th month in a row (with close to double digit pace in the last 3 months). However, it is important to note that the trend in single family starts remains upward.”
“In short, we continue to expect a moderate recovery in the housing sector since we believe that the recent trend in starts is not consistent with fundamentals.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.